Betting on Japan's Legalization of Gambling

All around the world, same song. And by “song,” I of course mean “economic motivators.” It seems that every country in the world faces the same problems (yawning budget deficits) and is looking to the same solutions (raising revenues through unconventional means).

Tired of seeing their citizens leave their yen on the gaming tables of foreign casinos, the Japanese government is strongly considering making a bet of its own by legalizing gambling. Any moral qualms aside, it makes sense. Japan is the most highly-indebted developed country in the world, and its budget deficits routinely top 8% of GDP. Closing the gap through tax hikes or spending cuts risks weakening an economy that is perpetually on the cusp of recession; better to raise revenues by less conventional means.

It’s not uncommon for countries to legalize certain vices during hard economic times. America’s Prohibition of alcohol lasted throughout the Roaring 20s, but it barely survived three years into the Great Depression. With the U.S. government running budget deficits among the highest in the world and with anti-government sentiment bubbling over from both the left and right, it’s fair to wonder whether legalization of “soft” drugs like marijuana may be in the cards before we finally pull out of the current Great Recession.

The economics are straightforward enough; prohibition and enforcement of vice laws are a governmental expense, whereas legalization and taxation of vices are a source of revenue. (For the history buffs out there, it is no coincidence that the Progressive movement favored both the Federal income tax and the prohibition of alcohol; the income tax was a necessary evil to plug the holes left from vice taxes that would never be collected again. Once the income tax was in place, booze taxes became expendable.)